Korea's steel industry presses for stronger K-Steel Act amid deepening slump

As a prolonged slump continues to weigh on South Korea's steel industry, calls are growing to strengthen the recently enacted K-Steel Act — the Special Act on Strengthening the Competitiveness of the Steel Industry and Transitioning to Carbon Neutrality. With global oversupply and weak demand showing no signs of easing, the industry's accelerating shift away from carbon-intensive production has pushed electricity cost relief to the top of the policy agenda.

Industry sources said Posco recently completed and began full operation of a new electric arc furnace at its Gwangyang Steelworks with an annual capacity of 2.5 million tons. The facility is the largest single electric arc furnace unit in South Korea and is expected to cut carbon emissions by up to 75 percent compared with a conventional blast furnace.

The shift to electric arc furnaces is widely regarded as the first step in the steel industry's decarbonization transition. The traditional blast furnace-converter process — which feeds iron ore and coal (coke) into a blast furnace to produce molten iron, then refines it in a converter — enables mass production of high-quality steel but generates large volumes of carbon emissions. Electric arc furnaces, by contrast, recycle scrap metal and can dramatically reduce carbon output.

Posco also plans to further reduce carbon emissions by commercializing hydrogen reduction steelmaking — known as HyREX — by 2030. The technology produces iron from iron ore using hydrogen instead of coal, generating almost no carbon dioxide. The HyREX process also replaces the conventional converter with an electric smelting furnace.

The central challenge is electricity costs. While electric arc furnaces emit less carbon than blast furnaces, they consume far more power. Posco has historically met about 85 percent of its total electricity needs through self-generation, but as it shifts from a blast furnace-centered production system to a low-carbon one, expanding its electric arc furnace capacity is unavoidable — and its reliance on externally procured power is likely to grow.

Steelmakers that have already built their operations around electric arc furnaces are feeling the full force of rising power prices. According to the Korea Employers Federation, the average unit price of industrial electricity rose 75.8 percent over the three years from 2022 through last year. Dongkuk Steel Mill, which operates exclusively with electric arc furnaces, spent 296 billion won ($193 million) on electricity last year — five times its operating profit of 59.4 billion won. With the company's capacity utilization rate at 74.9 percent last year, concerns are mounting that any increase in output would push costs even higher.

The electricity burden has prompted growing calls within the industry for dedicated support measures. While the K-Steel Act includes provisions for low-carbon steel certification, special zone designation, business restructuring support and fair trade exemptions, it does not address industrial electricity costs.

Some in the industry are calling for regionally differentiated electricity pricing in line with the Distributed Energy Act, which allows electricity rates to vary by region based on transmission and distribution costs, among other factors, in the interest of balanced national development.

"Korea's competitors in the global market are Chinese producers, who use low costs as their weapon," an industry official said. "Since steelmaking facilities are spread across the country, a regional electricity pricing system would be a major help to the industry."

Structural restructuring remains another unresolved challenge. The government said last year it would support supply rationalization and business reorganization through its steel industry upgrade plan and the K-Steel Act, but results so far have been limited. The industry broadly agrees that restructuring is needed, particularly in the rebar segment, but views the government's preferred approach — voluntary business reorganization — as difficult to carry out in practice.

Hyundai Steel and Dongkuk Steel Mill together account for roughly half of domestic rebar production, with smaller companies making up the other half. For those smaller producers, rebar typically represents the bulk of their output, and the stakes for local economies and employment make cutting production or closing facilities extremely difficult. Hyundai Steel moved to close its rebar facilities at the Incheon factory in January, but no further restructuring activity has followed across the industry.

The industry acknowledges that the K-Steel Act has laid an institutional foundation for the low-carbon transition and business restructuring. With the law set to expire at the end of 2028, however, achieving meaningful results will require more practical follow-up measures — including electricity cost relief and stronger restructuring support.

"Each company is individually coping with the downturn by cutting utilization rates, and smaller firms are simply trying to hold on," an industry official said. "Without providing incentives for smaller companies to restructure, it is hard to see how industry-wide restructuring will happen."